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The Big Squeeze

The housing market is struggling to climb out of a depression, hobbled by falling prices, foreclosures, short sales, and negative equity.

Less appreciated is how tough the past decade has been for renters, despite a brief respite during the great recession and anemic recovery. Odds are that even as the housing market improves the rental market will deteriorate, especially for moderate-to low-income households. Vacancy rates are coming down, landlords are starting to raise rents (a little), and hardly any new supply is being created for the market.

That's according to America's Rental Housing, a sobering new report by the Joint Center for Housing Studies of Harvard University. Even though the home market gets much of the nation's attention the rental market matters since it accounts for about a third of Americans households.

The numbers on how unaffordable renting is becoming to growing number of households really stood out. A common standard of affordability in the market is that rent and utilities shouldn't absorb more than 30% of income. By this metric, under 30% is affordable; between 30% and 50% of income is a moderate strain; and 50% and above is a severe cost burden.

Now, to the numbers: In 2009, the share of moderately and severely cost burdened renters reached 49%. Specifically, one in four renters--10.1 million households--spent more than half their income on rent and utilities while another 26.2% forked out between 30% and 50% on rent and utilities. The comparable numbers in 1960 was about 25%, with 11.9% severely burdened and a similar percentage moderately burdened.

These numbers are going in the wrong direction.

Here's another striking figure.

In 2003, 16.3 million very low-income renters competed for 120 million affordable and adequate rentals. In 2009, the ranks of these low-income renters had swelled to 18.0 million while the number of affordable and acceptable units had fallen to 11.6 million--a supply gap of 6.4 million units. But there is very little building going on to close the gap.

I moderated a lively discussion on the nation's rental market for the Joint Center at the Newseum in Washington D.C. on April 26th. The panelists were Mark Calabria, director of financial regulation studies at the Cato Institute, Nancy Andrews, President and CEO of the Low Income Investment Fund, and Richard Baron, chairman and CEO of Baron Salzar, a for-profit developer of economically integrated urban neighborhoods.

My takeaway from the conversation? The Big Squeeze on low-income renters is only going to get worse, much worse. The federal government is embracing an era of scarcity as it struggles to reduce the budget deficit and the national debt. State and local governments are cutting into services, too. Renter incomes adjusted for inflation declined from 1975 through 2009 even as real median incomes overall rose modestly. It's hard to imagine incomes improving for low-income renters with the nation's broadest measure of unemployment and underemployment at 15.7%. Rising energy and food costs are cutting deep into household budgets. It's too costly to build low-income housing in many areas of the country.

Here is an interview with HUD Secretary Shaun Donovan by CNBC's Diana Olick. (They did the interview out on the deck of the Newseum after the conference.)